Tax plan impact a mystery for the middle class, but not for Trump

WASHINGTON — Who are the winners and losers in the new Republican tax plan?

For the middle class, in particular, it's hard to tell.

Experts say the net effects on lower- and middle-income Americans are hard to determine, while the potential gains for ultra-wealthy Americans and businesses are larger and more concrete. Here's a look at the key provisions of President Donald Trump's proposals.

How will an average family fare?

For individuals, the plan collapses the tax brackets from seven rates into just three: 12 percent, 25 percent and 35 percent. The bottom rate would go up from 10 percent, the top would go down from 39.6 percent.

It appears to get rid of most deductions, explicitly keeping only those on mortgage interest and charitable donations, while raising the standard deduction most filers take to $12,000 for single filers (up from $6,350) and $24,000 for married couples (up from $12,700).

The most controversial deduction that's gone is for state and local taxes, which would disproportionately affect filers in states with higher taxes like New York, New Jersey and California. The deduction provides the most benefit to upper-middle-class and wealthy income filers, who could see their taxes go up as a result under the Trump/GOP plan.

RELATED: 7 states that tax the poor the most

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7 states that tax the poor the most

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7 states that tax the poor the most

7. Tennessee

If you're in the poorest 20% of Tennessee residents, you'll end up being taxed at a rate of 10.9%. The middle-class pays a slightly lower 8.4%, while the one-percenters pay 3%. One of the reasons the Volunteer State lands on this list is that it counts on regressive excise and sales taxes to provide over half of the state's tax revenue, even charging sales taxes on groceries, albeit at a lower rate than other items.

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6. Pennsylvania

Pennsylvania doesn't exactly target the poor; it just taxes all of its residents at high rates. While the bottom fifth of earners end up paying 12% of their income to Harrisburg (the state capital), the middle and 1% earners also have relatively high rates -- 10.1% and 4.2%, respectively. The difference, though, is still felt the hardest at the bottom.

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5. Illinois

Illinois is often referred to as a "tax hell," and not without reason. It has some of the highest tax rates across the board -- and it has still found itself with troubling deficits. While one-percenters pay 4.6% of their pay in taxes, and middle-income folks have a comparatively high 10.9% rate, the poorest pay a hefty 13.2% of their income. Sales taxes on groceries are a particular burden even though they're charged at a lower rate than taxes on other sales.

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4. South Dakota

While South Dakota has no income tax to speak of -- providing some relief for low-income earners -- it still relies on sales and excise taxes to provide the majority of revenue. That means that while the poor need to fork over 11.3% of their income in the form of taxes, the top 1% are forced to pay only 1.8% of what they have. Full sales taxes on groceries are a key factor for poorer residents.

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3. Texas

Like South Dakota, Texas has no state income tax to speak of. That also means that -- like South Dakota -- it must rely heavily on sales and excise taxes. Texas' poorest residents end up turning over 12.5% of their income to taxes. The middle-class tax rate is 8.8%, while the top 1% pays 2.9%.

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2. Florida

Perhaps we might see a pattern developing here: Florida also has no state income tax and thus has to rely on regressive taxes to fill that state's coffers. That means poorer residents end up paying 12.9% in taxes, the middle class comes in with an 8.3% rate, and the richest pay only 1.9% of their income.

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1. Washington

Finally, we have the odd case of Washington. I say "odd" because while Florida, Texas, and South Dakota have a reputation as small-government, conservative states that like to do away with income taxes, Washington does not occupy that same ground. But because -- like the aforementioned states -- Washington has no income tax to speak of, it relies on very heavy regressive taxes to make ends meet. That means the poorest end up paying a record-high rate of 16.8% of their income in taxes. The middle class comes in with a fairly high 10.1% rate, and the highest earners pay just 2.4%.

Of course, there are trade-offs with these systems. By not having income taxes, some of these states can offer incentives to the highest earners to move within their borders, thus bringing more spending and economic activity with them. At this point, however, that doesn't seem to be providing enormous relief to the poorest of the poor.

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On paper, the biggest beneficiaries of the individual changes are low- and middle-income single filers and childless couples who would see more earnings covered by the higher standard deduction. But some families might see a tax increase since the proposal eliminates the personal exemption that filers currently claim for each taxpayer and dependent. Senior citizens and the blind currently also receive an additional deduction that could be affected by the proposal.

"Based on the details of the plan that have been released, a married couple with two kids earning [under] $79,583 a year would pay more under the Trump plan than under existing law," said Daniel Hemel, an assistant professor of law at the University of Chicago.

But judging exactly how the changes affect people is hard, based on the available info.

The left-leaning Center on Budget and Policy Priorities concluded in a preliminary analysis that "the end result would likely be close to a wash for many low- and middle-income families," but said that it was hard to get more specific without additional information on how pieces like a new child tax credit would work.

Notably, the Trump proposal doesn’t say which incomes fall into which brackets. And while wonks are assuming that any deduction or exemption not mentioned is cut, they won’t know for sure until there’s a more detailed plan or bill.

Bottom line: If you’re trying to figure out the future of your tax bill, you need more information.

How do the rich do?

Trump has repeatedly claimed that his plan would benefit the middle class and not millionaires like himself.

"It's not good for me, believe me," he said in a speech on Wednesday.

So far, however, the evidence points to the contrary. While the middle-class gains are still ambiguous, there are multiple provisions that appear to benefit Trump’s personal income, his businesses, and especially his children.

The clearest windfall comes from ending the estate tax, which only affects individual estates larger than $5.49 million and $11 million for couples. The estate tax is currently 40 percent. Trump has claimed in the past he is worth $10 billion. If his children inherit that amount, they’d save $4 billion in taxes.

But there are other boosts as well. In addition to a lower top rate on income tax, the proposal ends the Alternative Minimum Tax, which is designed to prevent wealthy filers from using deductions to wipe out their tax bill entirely. Trump has not released his taxes, but a leaked return from 2005 showed he paid $38 million in taxes on $150 million in income, $31 million of which was due to the AMT.

The white paper on the GOP tax plan suggests it might add a higher income-tax rate later to make sure it "does not shift the tax burden from high-income to lower- and middle-income taxpayers." But some experts are doubtful any tweak to the top rate could make up for the breaks for high earners elsewhere.

"It’s about as likely as the president never tweeting again," Lily Batchelder, a professor at the NYU School of Law, said in an email.

How do businesses do?

The Republican plan would also lower the tax on pass-through income, which business owners and investors can use to pay taxes on profits, to 25 percent.

This change could create a massive incentive for wealthy earners to route their income through a business entity in order to avoid the top 35 percent income tax rate. Trump, whose business empire is organized through pass-throughs, could be one such beneficiary.

The GOP proposal says lawmakers will find a way to restrict the lower pass-through rate to small businesses, but they offered no details on Wednesday and experts are skeptical there’s any enforcement mechanism that could prevent rich investors from gaming the system with smart accountants.

"The Trump administration seems to want a plan that keeps the top 1 percent at the same tax burden as current law," Kyle Pomerleau, director of Federal Projects at the Tax Foundation, said in an email. "This is totally possible at somewhat lower rates, but I think it’s infeasible if the pass-through rate is that much lower than the ordinary income-tax rate."

Details are scarce there, too. The plan says multinational corporations will be able to bring foreign profits back to America with no tax penalty, for example, but adds that they’ll face an unspecified reduced tax rate on global earnings in the future.

Paying for the package will be difficult. The nonpartisan Center for a Responsible Federal Budget estimates the total proposal would cost $2.2 trillion over the next decade. But lawmakers also face strong pressure from affected groups to keep breaks that benefit them, which could add to the cost. Already key lawmakers, like Rep. Pete King, R-N.Y., are upset about losing the state and local deduction.